The Department of Health is tightening up on the controversial Medical Schemes Act. Although new draft legislation aims at giving medical scheme members greater protection against some of the excesses taking place in the industry, it may also result in higher costs for consumers.
The main points of the draft legislation include:
- Greater control of re-insurance following claims by the Council for Medical Schemes last year that re-insurance is being abused to generate extra profits for medical fund administrators, to the financial detriment of scheme members;
- Changes to waiting periods before claims can be submitted when joining a new scheme;
- Prohibiting discrimination on the grounds of age;
- Increasing the powers of the Council for Medical Schemes, so that it can act against abuses;
- Ensuring that the trustees, principal officers and auditors of medical schemes are truly independent; and
- Placing greater controls on the commissions/fees paid to brokers.
However, medical scheme administrators say the real impact of the bill is unknown because many of the issues it addresses will only be clarified when new regulations, which are subordinate to the legislation, are published.
Anton Roux, the chief executive of Medscheme - the country's largest medical scheme administrator - says there are not too many surprises in the bill and, while the medical schemes industry does not relish additional regulation, it is probably necessary in some grey areas where clarity and uniformity needs to be achieved.
Adrian Gore, the chief executive of the high-profile Discovery Health, says the bill misses a critical opportunity to bring the medical schemes environment on track to meet the objectives of:
- Providing medical cover for more people;
- Reducing costs;
- Defining what constitutes a medical scheme; and
- Improving the stability of the industry.
However, Gore, who was at the centre of the re-insurance row and whose company is still the subject of a Council for Medical Schemes investigation into the use of re-insurance, says the re-insurance proposals in the draft legislation are a positive step, which should make the process more efficient and constructive for the industry.
Roux says the proposed re-insurance measures will give the Registrar of Medical Schemes very clear powers to stamp out the profit-stripping practices of some insurers.
The draft legislation also removes the conditions that if you don't have two years' continuous membership of another scheme and don't join a new scheme within three months, waiting periods on claims can be applied by a scheme. It seems that conditions for waiting periods will now be set out in the regulations.
The practice of making law by regulation is increasingly causing concern in the medical schemes industry, because it creates uncertainty, administrators say.
The proposed measures include a requirement for independent evaluations of any re-insurance schemes and approval by the Registrar of Medical Schemes.
On the controversial issue of commissions/fees to brokers, the draft legislation states that all commission and fees will have to be paid in terms of yet-to-be-published regulations and that any other incentives will be banned.
Currently, legislation states that brokers can be paid a commission of three percent of the first year's contributions of members. Most schemes, however, then pay annual administration fees of between five and eight percent of annual member contributions. This often amounts to more than half the total administration costs charged by the administrators.
Roux says there has been a lot of uncertainty on the issue. The bill shows there is a determination to ensure a uniform approach to commissions, which will probably level the playing fields to the extent that brokers can advise clients based on their needs, without being unduly influenced by different commission structures.
Roux says one of the problems is that some brokers genuinely provide add-on administration services to you, while others simply introduce members to a scheme.
Gore says that if used correctly, brokers provide invaluable advice - but if used incorrectly, it can lead to abuses.
The draft legislation clarifies what constitutes a medical scheme and an insurance policy, such as a hospital plan.
The indications are that anything that remotely resembles a medical scheme will be subject to the legislation, as will such issues as access, where discrimination on such grounds as health and age is prohibited. Currently, insurance schemes can reject anyone who they feel is too great a risk.
Source: Personal Finance, 9 June 2001
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